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U.K. considers changes to civil litigation system

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LONDON—Proposed changes in the way costs are imposed in civil litigation in the United Kingdom could lead to an increase in class action-style lawsuits, some legal experts say.

The proposals also could result in less use of so-called after-the-event insurance and curb conditional fee arrangements, among other changes, other experts say.

In a wide-ranging report, "Review of Civil Litigations Costs: Preliminary Report," Lord Justice of Appeal Rupert Jackson examined whether changes should be made to reduce the costs of civil litigation in the United Kingdom and promote "access to justice."

"The issues in the review are both complex and intractable—there are no simple answers. Nor are the facts straightforward," Justice Jackson said of approximately 2 million civil lawsuits filed in the United Kingdom a year, about 10% of which are contested and could result in "significant costs," he said in last month's report.

A final report is due later this year.

The 1,000-page report suggests that all areas of allocating civil litigation costs are under review, said Nichola Evans, a London-based partner at law firm Browne Jacobson L.L.P.

In the United Kingdom, group actions are brought on an opt-in basis, whereby claimants must choose to become part of the class rather than automatically being counted as part of the class unless they opt out, as is the norm in some other jurisdictions.

Typically, U.K. courts impose so-called "cost shifting" in which the unsuccessful party is required to pay the successful party's court costs.

Many see the cost-shifting as a potential barrier to bringing group actions in the United Kingdom, said Neil Mirchandani, a partner in the dispute resolutions practice at law firm Lovells L.L.P. in London. Because Justice Jackson's reason for the review is to examine costs, his report does not fully address other issues that could affect the number of group actions filed, he noted.

In the report, Justice Jackson said several potential changes to the existing cost regime for group actions "merit consideration."

Among them are instituting a no-cost-shifting rule; allowing cost-shifting for only part of the proceedings, for example only after the stage where a class wins certification; implementing a common funds doctrine, such as that used in the United States in which successful lawyers are entitled to have their fees reimbursed from the fund awarded to the class; public interest litigation, whereby the court has power to order that no cost-shifting occur when a group representative brings an action on an issue of public interest; and using a lower-cost scale for collective actions.

Justice Jackson said his "tentative view" to do away with cost-shifting for collective actions merits serious consideration in the second phase of his review and would, among other things, promote access to justice and be fairer for defendants.

If parties to a class action did not run the risk of having to pay the defendants' costs, there could be "a surge in class actions, as the barriers to entry into the litigation field would be lower," said Liam O'Connell, partner and head of the dispute resolution practice at London-based law firm CMS Cameron McKenna L.L.P.

There also could be an increase in frivolous litigation if cost-shifting were removed, said Mr. Mirchandani.

In the report, Justice Jackson also explored after-the-event insurance, which covers a litigant against future liability for the costs of an opposing party.

This type of insurance is most commonly bought in cases in which lawyers use conditional fee—or no-win, no-fee—agreements.

Justice Jackson said for large commercial cases, the premium for after-the-event insurance typically is about 35% to 45% of the sum insured. For group litigation, premiums typically are 30% to 40% and for libel cases, premiums can be up 50% of the sum insured, he noted.

Justice Jackson said while some consider after-the-event insurance to be prohibitively expensive, insurers contend there are sufficient players to ensure premiums are competitive.

The report also raises the question of whether after-the-event insurance should continue to be recoverable from an unsuccessful defendant.

After-the-event insurers should become involved in the debate about whether premiums are reasonable, "whether the premiums should be recoverable and also whether access to justice can be preserved where there is after-the-event insurance and a success fee," said Browne Jacobson's Ms. Evans.

"After-the-event insurance is now in the firing line," said CMS Cameron McKenna's Mr. O'Connell. "It's seen as an unnecessary cost of litigation that can and should be eliminated."

The removal of after-the-event insurance would have a big effect on law firms that use a no-win, no-fee model, he said.

In his report, Justice Jackson said no-win, no-fee arrangements should exist in some form "to facilitate access to justice." The real issue, he said, is how such arrangements should be structured.

It is possible that U.S.-style contingency fees, whereby a lawyer takes a percentage of damages recovered, may be introduced in the United Kingdom as a result of the Jackson review, Mr. O'Connell said.

Interested parties now have the opportunity to react to the findings before Justice Jackson by year-end produces a final review, which will contain recommendations.

The U.K. Bar Council said its working group will "consider the issues raised in the report" and produce a response.